Applying Business Strategy Theory in Practice

Demographics: Defining Your Ideal Customer

by William Ellis on May 27, 2012

I’ve recently returned from the Channel Islands. They are famous for being centres of offshore finance, but also beautiful places for a holiday. I visited the islands to help present 3 concepts by Inaperfectworld for the re-design of a hotel restaurant. I’m not a designer but I am keenly aware that an investment such as this needs to fit the overall strategy for the hotel, be customer focused and provide a return on investment for the sponsor. The hotel owners told us their aim for the new restaurant was to increase revenue by 51%, roughly £5 per head.

Inaperfectworld designers Rob Wilson and Emma Sjorgren in Guernsey

So, lets take a look at the steps we took to build a business case for our re-design.

Step 1: Scanning the business environment (looking for themes and trends)

We began our research by scanning the business environment; looking at successful hotels and restaurants around the world. This was good for generating ideas for the design team. Here we not only looked for inspiration in designs that we liked, but also in emerging themes, for instance, what are the public and industry professionals (e.g. restaurant critics) talking about? A good first step is searching the web and scanning social media. We were specifically looking for trends both at a local and at an international level. An interesting emerging theme we found was “eating ingredients sourced within the restaurant postcode”.

Step 2: Analyze the competition and look for feedback

Next, we drew up a list of the restaurants that were the natural competitors to “our” restaurant and analyzed their client offering. These were predominantly hotel restaurants and restaurants on the island; the choice of eatery on offer to the local population. We were particularly keen to appeal to this customer group as the local populace are key customers of the hotel in the “shoulder months” or quiet months between holiday seasons. We asked ourselves what did these do well and why were they popular. At this stage too, we started to look internally at the restaurant’s current offering. Unfortunately, we weren’t given permission to interview the staff in the hotel or to get feedback from existing customers -a great free source of information. However, now you can find reviews online and so we scanned Tripadvisor/Booking.com and local media. If you get the chance to interview staff, you’re in luck as the opinions of the staff in any organisation are particularly valuable. Staff get feedback from the customers every day and importantly too, they will have to work in the new space. A nice bonus is that by interviewing them and asking for their feedback you are already working on getting their buy-in to your project.

Step 3: Pricing Strategy

An important point in any strategy is focusing on pricing. In this example we looked at the restaurant’s pricing on food and wine compared to our list of local competitors. It offered a £25, three course menu which compared well with the competition. Overall however, the prices, particularly the A La Carte menu were high. Consequently we felt that trying to increase revenues through raising the prices of the food in the restaurant or by reducing overheads were likely to be self-defeating strategies.

Step 4: Define who is the current customer and who is your preferred customer?

By this stage you are starting to build up a good picture of the external and internal environment. Now comes the most important point. Ask yourself, who is the current restaurant customer and who is the preferred customer? Unfortunately again we couldn’t source this information. However, we made an estimate of the restaurant’s current demographic as being roughly 60% corporate and 40% leisure split 50/50 local and international. As our analysis had revealed little scope for movement on the pricing of the food, we thought we would take a look at the area of drinks and how we might be able to increase the spend for this customer base. Moreover, perhaps within our defined customer base there was a lucrative niche.

Step 5: Collating & Analyzing Data

To find out more about the spending habits of our UK and local customers we looked at some government statistics. Governments collect all kinds of data and mostly it is available on-line for free. In the UK this data is provided by the Office of National Statistics and in Guernsey by the Commerce and Employment Department. We found three surveys of particular interest: the first was the “household expenditure survey” for the UK, a similar survey for Guernsey and a third National Health Service (NHS) survey on drinking habits in the UK.

The UK and Guernsey governments’ “household expenditure survey” shows the spending habits of the population broken down into categories such as age, sex, earnings, marital status etc. From this data you can start to construct a clearer picture of your preferred customer from within your existing customer base, in other words; who are your most most valuable customers!

The first point that we noticed about Guernsey from the data compared to the UK was that household incomes exhibit a positive skew towards high earning households. In other words, a higher proportion of the population have a larger disposable income than the average UK household.

Income Distributions exhibit positive skew

Drilling down into the data and combining these household surveys with the NHS data, you form a picture of specific alcohol consumption too. Here we found out that the average Guernseyman had a 57% higher weekly spend on alcohol compared to a person in the UK. Even more interesting was that the surveys segmented spending on alcohol into different categories, of wine, beer, liquors and fortified wines. The spend per head was broken down by income group and by age.

Income Distributions by Quintile (GSY Household Survey, 2006)

An interesting fact to emerge was that the higher earning the household, the more they spent on “wine out with a meal” and they also spent more on alcohol in general. Check out the much larger red coloured bars, denoting wines drunk out, in Quintiles 4 and 5 in the diagram below.

By slowly going through the data and analyzing it, a picture starts to emerge of the most valuable customer to the new restaurant. The facts that seemed most relevant were: spend by age identified that the age group 35 to 64 and earning over £1,000 per week were most likely to spend the most on wine. Men and women aged over 45 (equally m/f), who were professional, and cohabiting/married drank the most wine.

With this information to hand, could there be a case for selling more expensive wine to the current customer base? Our analysis suggested that wine, as well as having a long-term growth trend in consumption, had a great following among a specific high spending demographic. By focusing on selling premium wine and enhancing this experience, we could increase the numbers of our target demographic. This strategy seemed to have a chance of reaching the management’s £5 target increase in spend per customer.

Wine Consumption UK: Long-term growth trend

Step 7: Present and sell your business case framed in the client view
Closing the deal, this deserves an entire blog in its own right! A sound tip is to sell a solution which is not alien to your client. An advantage of this concept was that the restaurant had a good wine list and promoted a monthly wine club to showcase its fine wines and attract new diners to its restaurant. As the management itself had already chosen to differentiate the restaurant on the basis of wine and therefore this added extra support to our idea of presenting a wine themed re-design. When presenting any new idea it stands more chance of success if your solution already falls within the frame of your client’s mindset.

We will have to wait and see if any of our 3 concepts are chosen by the hotel. However, by following this 7 step process a business case can be built. To summarize:

Step 1: Scanning the business environment (looking for themes and trends)

Step 2: Analyze the competition and look for feedback

Step 3: Pricing Strategy

Step 4: Define who is the current customer and who is your preferred customer?

Step 5: Collating & Analyzing Data

Step 6: Build the Ideal Customer Profile

Step 7: Present and sell your business case framed in the client view

Appendix:

Here are Inaperfectworld’s theme, space and interior boards by Rob Wilson and Emma Sjogren for the wine concept.